Could your brokerage survive a FINTRAC audit?

We have already witnessed the federal government targeting the real estate industry when it comes to money laundering and Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) compliance.

Large fines have been levied against brokerage firms that have not been in compliance at the time of the audit. Here are some questions to ask to see if you are ready in case the FINTRAC auditors come calling.

1. Does your firm have an up-to-date FINTRAC policy and a FINTRAC compliance officer? Has everyone in your firm taken the required training online?

It is not enough to just have a FINTRAC policy. Every member of the brokerage, including sales reps, brokers and all employees should have read your company FINTRAC policy and taken the five modules on money laundering available through CREA. This should also be documented and records must be kept of this.

2. Does your brokerage provide FINTRAC update education every two years for all members of the firm, to confirm that any new guidelines are understood and followed?

For example, new FINTRAC guidelines for identifying individuals will take place after June 30, 2017. Is your firm aware of the changes? I have been providing FINTRAC update education courses for brokerages and real estate boards for the last several years. I have tried to demonstrate in my seminars that complying with FINTRAC can actually increase business if approached in a positive manner.

3. Does your firm properly identify clients?

This may be the most important information reviewed by FINTRAC auditors. Are you making sure that your clients have a connection to Canada? The more connected they are, the less likely they will be involved in illegal activities. The more you know about a client’s employment and occupation, the easier it is to build a relationship with them. And you are complying with FINTRAC at the same time.

4. What are you doing to monitor clients in a business relationship?

If a client conducts a second transaction with your brokerage within five years, they are said to be in a business relationship with your firm and this may require ongoing monitoring.

Does your firm have a policy in place to identify whether any new client has in fact done a deal with your brokerage in the last five years, and if so, how is this client to be monitored? What additional questions should the client be asked about their new purchase or sale and whether they are in the ordinary course of the client’s business?

5. Every broker of record is required to do a comprehensive risk assessment of their brokerage every two years.

Unfortunately, most just check off some boxes on a form, stating that they have checked their records and their risk has not increased. Unfortunately, in almost all audits that I have seen, this is considered to be a serious concern of the auditors. They expect you to have reviewed a substantial number of random files to confirm that all documents have been properly prepared, signed and filed and that you have also considered other factors, including whether your firm deals with properties that are close to the U.S. border, whether your agents are part-time or full-time and the general crime rate in your own area.

Does your brokerage insist, for example, that no commission will be paid unless and until all documents, including FINTRAC, are properly completed and filed? This should be standard practice.

by Mark Weisleder

This article originally appeared in the February 6, 2017 edition of REMonline. Reprinted with permission.